Bankruptcy attorneys and experts are cheering a recent decision by the United States Supreme Court that clarifies the authority of bankruptcy courts to entertain non-bankruptcy claims that arise in the context of a debtor’s bankruptcy.

The high court’s 2011 decision in Stern v. Marshall “shook the bankruptcy bar,” according to the Legal Intelligencer. Although the court acknowledged in that case that bankruptcy courts have statutory authority—under 28 U.S.C. Section 157—to enter final judgments on claims arising under state law brought in the context of a debtor’s bankruptcy action, the Constitution did not confer upon bankruptcy courts such broad authority.

Instead, only so-called Article III courts—the federal district courts established under Article III of the Constitution of the United States, whose judges enjoy lifetime tenure, giving them “judicial integrity and independence”—can issue final judgments on non-bankruptcy claims that happen to arise in a bankruptcy proceeding. Bankruptcy judges serve fourteen-year terms and can be removed for cause. Traditionally, Article III courts—also known as federal district courts—have served in a supervisory capacity over actions brought in the context of bankruptcy proceedings.

Stern involved “core” bankruptcy claims, or legal actions brought by or against debtors in a bankruptcy action that were intimately tied to the pending bankruptcy action. Before Stern, the parties to such an action could consent to the jurisdiction of the bankruptcy court to issue a final order in such actions, even though the jurisdiction to do so would—in non-bankruptcy circumstances—have been vested in a federal district court. Stern called this arrangement into question, with the high-court holding that bankruptcy courts lacked the authority to issue final orders despite statutory authorization and consent of the parties.

The problem with Stern was that parties frequently choose to litigate both “core” and “non-core” bankruptcy claims that arose under state law in bankruptcy courts. It is easier and makes sense, for a variety of reasons, to have all the claims arising with respect to a single debtor or group of debtors in one courtroom before one judge. Stern had the potential of ending that practice, since it deprived the bankruptcy courts of jurisdiction to enter judgments in certain actions.

In a follow-up to Stern in 2014—Executive Benefits Insurance Agency v. Arkison—the Supreme Court ruled that bankruptcy courts could propose findings of fact and conclusions of law to be reviewed by a federal district court in “non-core” bankruptcy claims. Arkison left open the issue of whether bankruptcy courts could issue final judgments in “core” bankruptcy claims.

In a May 26 ruling in Wellness International Netwrok Ltd. v. Sharif, the Supreme Court revisited Stern, ruling that a non-Article III bankruptcy judges can—with the consent of the parties to an action—issue a final judgment on a claim that would, in non-bankruptcy circumstances, be brought in federal district court.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.

About the Author

Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.